Islamic Study – Practices of gharar in trading widespread in various forms

Bogor, W Java (Indonesia Window) – Types and forms of business are increasingly developing nowadays, and however practices of gharar (غرر) can still be found in commercial and even social transactions.

Gharar is one of the most strictly prohibited elements in the Islamic financial contracts or transactions. Gharar is treated as an excessive risk, uncertainty, and speculation by most of the Muslim literature and scholars with regard to financial and commercial contracts. (ResearchGate)

In an Islamic study entitled ‘Gharar Applications in Trading,’ which was held by the Indonesian Muslim Entrepreneurs Community (locally known as KPMI)’s Bogor chapter in Indonesia’s West Java province, at the mosque of the Bogor Institute of Agriculture, on Sunday (Nov. 26), Ustadz Ahmad Suryana explained that trading in the gharar basis is buying and selling that contains ambiguity.

Ustadz Ahmad Suryana is a mentor of the Bogor chapter of the KPMI. Ustadz is an Islamic expert or a scholar.

This ambiguity can be attached to several things, namely objects being traded, prices, and goods that are the return for payment for the objects being traded, or transactions that contain speculations or are betting in nature.

Islam’s scholar late Imam an-Nawawi (may Allah’s blessings be upon him) said in the Sahih Muslim (the Book of hadiths of Islam’s Imam Muslim), that the prohibition of practices of gharar in trading is a great principle, which is big in the main points of the book of trading,” Ustadz Ahmad explained.

He further said, “So we should not take the discussion of gharar as a trivial thing, because this includes the prohibition written in the argument that this form of buying and selling is prohibited”.

“Therefore, Imam Muslim put forward or placed the hadith about gharar at the front or beginning of the book of trading. And there are many issues included in this gharar chapter,” the ustadz noted.

He further explained that in books on muamalah fiqh there are three terms related to the object of jahala (obscurity), namely mukhadharah (speculation), qimar or maysir (gambling). Muamalah fiqh is an Islamic rule that must be followed and obeyed by humans in living in society.

Of these three terms, maysir or gambling is probably more commonly known in society.

Gambling is all transactions that contain mukhadharah or speculation, which is a matter of speculative practices because it is done by betting.

Meanwhile, gharar is a gambling scheme that occurs in buying and selling transactions or in the exchange of goods. “So gharar is a synonym for gambling, but specifically in the buying and selling matter,” explained Ustadz Ahmad.

As for qimar, it is a bet. “This is a form of gambling but it is attached to matches and competitions, such as quizzes or games of football, chess, cockfighting, playing cards. Or it could also include elements of buying and selling and also elements of betting and games,” Ahmad Suryana said.

He further gave examples of several gharar practices that are often found in buying and selling activities in society, including aspects of the quality or specifications of goods, money and payment time.

“When buying and selling, the seller must explain what the goods are, what the specs are, how many kilos the content is or how many meters long, or what color it is. Well, those are the specifications of the goods, and if this is not clear, this is what is called gharar,” explained Ustadz Ahmad.

Furthermore, from the payment aspect, the seller and buyer must know how much the goods cost and when payment must be made. “This must be clear, otherwise this is called gharar,” he stressed.

“So, mukhadharah or speculation is included in gharar, namely speculation that is in the nature of chance regarding reciprocal objects (from buying and selling),” he said, adding that this kind of speculation is not the same as the possibility of profit or loss in other buying and selling.

“Many people often misunderstand this,” he noted.

He pointed out that one of the unlawful speculative practices can be found in buying and selling shares whose prices sometimes rise drastically or tumble down. “This kind of speculation is prohibited.”

However, goods such as chilies and vegetables which have a high level of volatility – sometimes the price soars, sometimes falls, according to the situation and conditions – are not haram (no prohibition) for sale.

“What is meant by mukhadharah which is prohibited is that we pay for something, or buy something, but it is not clear what we get. This includes gharar,” explained Ust. Ahmad.

In the time of Prophet Muhammad ﷺ, gharar sales were practiced by throwing stones. This method requires buyers to throw stones at the items they want to buy. Goods that are hit by stones are the ones that would be bought and sold, and must be accepted by buyers under any circumstances.

The mentor of the Bogor chapter of the KPMI’s Bogor chapter emphasized, “So if we sell goods, the goods must be ready, we cannot sell goods that are not ready except in salam transactions or istishna transactions, or by ordering first.

Salam is a contract of sale and purchase of ordered goods (muslam fiih) with delivery at a later date by the seller (muslam illaihi) and payment is made by the buyer when the contract is agreed in accordance with certain conditions.

“Many Muslims ignore this because they are afraid of the risk, so they offer goods that are not yet ready by opening a P.O. in the WA (WhatsApp) group. Or the seller himself is in doubt, not sure whether the goods he is selling can be handed over or not. Why is he not sure, because the goods are not ready. Usually goods are sold online. This is not allowed,” he said.

A purchase order or P.O. is a document made by the buyer to the seller. This document contains a detailed list of services or goods you wish to purchase. For example, product details, prices and other detailed information.

Ustadz Ahmad Suryana also gave an example that buying and selling systems such as drop shipping and open resellers can be included in gharar. “The term is usually called a reseller, whereas it’s not.”

For example, he said, an image of same cellphone casings with watermarks could appear in several different stores in a market place. “Then if we chat with the seller, the response takes a long time because he or she has to ask the supplier first, so it is certain that this item is not owned by the seller.”

He further said, this is different from salam or istishna transactions, where the seller can ensure that the goods ordered by the buyer can be delivered at a later time.

“Why is a salam or istishna transaction permissible, even though the goods are not ready or unclear, this is because the seller can be sure that he or she will deliver or give the goods,” he explained.

In a salam transaction, products are prepaid in cash, while the products are received in advance. The opposite of this system is buying and selling on credit, that is, the goods are received first by the buyer and paid later.

Ahmad Suryana emphasized that credit transactions are permissible, because by law it is allowed to take price over time. “For example, the price of a limousine cow is 20 million rupiahs (one dollar = about 15,500 rupiahs), but the seller offers a price of 15 million rupiahs because the buyer wants to buy cash. This is permissible because there is a time value to money.”

“So buying and selling with salam transactions is where the price is cheaper due to delays in delivery of goods. “Meanwhile, buying and selling using credit is the opposite. The price of goods becomes expensive due to late payments,” he explained.

It was further explained that buying and selling with salam transaction is permitted for two reasons. First, what is being sold is not the item. “For example, there is a rambutan tree owner who offers good quality rambutan to fruit shops in November. But the goods will be delivered in December during harvest. “Usually one bunch costs 10,000 rupiahs, but the price at that time was only 5,000 rupiahs, with a minimum order of 100 kilograms.”

Rambutan is a fruit that can taste tart and sweet. It can be found more easily at specialty Asian markets.

The seller and buyer have agreed in advance that payment must be made in cash even though the goods (rambutan) are not yet ready. “In this case, the seller offers rambutan that is not yet ready but can ensure that when the goods have to be handed over to the buyer, he can provide good quality rambutan, even if his or her rambutan trees fail to be harvested.”

“In a salam transaction, the seller is sure that the goods being offered are widely available on the market. Then why do people want to buy from him, because they sell at a cheap price with delayed reciprocity,” the ustadz explained.

It is further explained that a salam transaction is not selling muayan (pointed) goods, but goods with certain specifications, provided the seller is sure that these goods are ready in many places.

“He sells goods at cheap prices even though there is a risk of loss. This is because salam trading is sometimes not about pursuing profits from price but from liquidity, or soft loans,” he pointed out.

“If the seller is smart in buying and selling by salam transactions, the money handed over in advance can be used in the market. In the salam system, buying and selling at a loss is okay because the money can be turned over.”

Another example of the salam system can be found in buying and selling fish on the sea.

“Sometimes fishermen who want to go to sea don’t have diesel fuel. So he can offer tuna to current buyers, even though the goods don’t exist yet. This buying and selling can be done by salam transaction. “It’s the specs that are being sold, not the goods.”

However, salam trading is not the same as an ijon buying and selling way, in which the seller offers current garden produce which cannot necessarily be harvested at a later date.

We can find this ijon way in Indonesia where buyers purchase rice or other kinds of crops before it is ripe and taken by the buyers after it is ripe.

“Buying and selling by ijon transaction like this is not permitted because the garden is not necessarily safe, it could fall off or be damaged by rains. This is called selling muayan goods, namely buying certain pointed goods. If certain goods are pointed (to be the object of sale and purchase), then the goods must be immediately handed over during the transaction.”

Less gharar

Determining the sale and purchase of gharar can also be based on the number of goods, where if the goods being sold are not clear but the quantity is small, then there is no problem, the ustadz told the audience.

For example, selling uduk rice. “There is one portion that contains one ladle, and there is one and a half. If there is little gharar, usually no one complains. But if it’s extreme, for example, one portion of uduk rice contains one ladle and the other two ladles, then this is gharar.”

Uduk rice which can be found in Indonesia is a dish made from white rice steamed with coconut milk.

Another example is an all you can eat service at a restaurant. “The seller has analyzed that if he sells three plates for one person at a certain price and will definitely satisfy the buyer, then with a small possibility of gharar. This is okay. But if it is sold not based on analysis or just based on speculation, then the gharar would be big. This is not allowed,” he said.

Other examples of buying and selling that contain a little gharar but are permissible are selling unpeeled durian (king of fruits found in tropical areas) with the possibility of rotten fruit, or buying and selling bundling (packages) of goods whose contents are unclear because what is being sold is a package, not the contents per unit.

“Selling wedding packages, for example, there is food, souvenirs and other things in one package, then this is not a problem. Or selling a pregnant cow, it is allowed. What is not permitted is if the fetus is sold in a cow’s stomach because there is a possibility of birth defects or death.”

Gharar in social matters

Commercial activities that contain gharar are haram (prohibited). “This is because the commercial principle in Islam is fairness. So if we have created a product whose purpose is not social, the calculations must be clear.

However, Ustadz Ahmad said, gharar is permitted in social activities.

“So don’t get confused. I often see social consequences mixed with commercial ones.”

“For instance, do teachers work in a foundation or agency or institution with a commercial or social contract? Obviously, this is a commercial contract because there are obligations attached. For example, he has to come at seven or eight in the morning. This has a time limit. He or she has to teach, make lesson plans, make questions. There’s a job description.”

“Sometimes employers ignore it. Commercial reciprocity is paid for by motivations of a social nature. For example, it is said, ‘You as a teacher must be enthusiastic, must be sincere in preaching, must make struggles, must take the trouble first.’ This is the same as deceiving people under the pretext of sharia (Islamic law) principle.”

“Teachers must be paid ujrah (wages) as compensation for the time we spend at school for several hours per day. He can’t work anywhere else during that time. And this is time that is rented so he has to get ujrah (wages).”

“Let’s not make social lures. For example, ‘Later, if you teach, God willing, the reward will be great, as you strive in the way of God. Later, if there is a lottery, you can get umrah (minor hajj) prizes for those who excel.”

Ustadz Ahmad emphasized that this lure could become an object of gharar, because it is a reciprocity that is not clear when to get it, and at what rate to get it.

“So don’t confuse social and commercial consequences,” he stressed.

Reporting by Indonesia Window